$8.2 Million Manipulation Scandal on Polymarket: System Overhauled After Investors Suffer 93% Losses
Polymarket has transitioned to a Time-Weighted Average Price (TWAP) system instead of instantaneous price tracking to prevent price manipulation in short-term cryptocurrency contracts, which has caused retail investors millions of dollars in losses.
Popular prediction market platform Polymarket has implemented a fundamental change in its market structure following price manipulation allegations that have been the subject of serious criticism recently. A comprehensive study conducted by Stanford University and Singapore Management University (SMU) revealed that 821 accounts on the platform earned $8.2 million in unfair profits through manipulative methods in short-term trades. With an overwhelming 93 percent of the losses incurred during this process falling on the shoulders of individual investors, platform management took action to protect market integrity.
Researchers identified that manipulators artificially moved prices by placing large-scale orders, particularly on the Binance exchange, just seconds before contracts closed. Through this method, they ensured that the price was pulled in the desired direction at the moment the prediction market contracts expired. Polymarket will now use the TWAP mechanism, which takes the average of prices over a specific period instead of instantaneous data, to close this structural loophole.
A New Era for Security in Prediction Markets
With the new system, price averages will be based on 30-second intervals for 5-minute markets, and 60-second intervals for 15-minute and 4-hour markets. While Chainlink Data Streams integration has been implemented to ensure the reliability of the data feed, the platform announced it will distribute $1 million in liquidity rewards throughout August to support this transition process.
Competing platform Kalshi states that it overcomes similar issues through regulated price indices and identity verification systems. This step taken by Polymarket aims to protect market integrity, particularly in short-term cryptocurrency predictions, and to safeguard individual investors against manipulative movements. The team, led by platform founder Shayne Coplan, aims to restore trust in the market with this update.